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July 8 — A law firm had a disqualifying conflict of interest in representing both the plaintiff
in civil racketeering litigation and a criminal defendant who pleaded guilty in the
scheme, the U.S. District Court for the Central District of California said June 24
(
State Comp. Ins. Fund v. Drobot, 2016 BL 205454, C.D. Cal., No. SACV 13-0956 AG (JCGx), 6/24/16
).

Judge Andrew J. Guilford stuck by his decision earlier this year to disqualify Hueston
Hennigan LLP as counsel for State Compensation Insurance Fund (SCIF) in the sprawling
civil litigation.
The civil and criminal cases are one and the same for conflicts purposes, and the
clients' dueling interests would mangle the firm's loyalties too severely for informed
consent to fix the conflict, Guilford found.

The firm obtained a total of seven waivers from SCIF and its criminal defense client,
but the waivers “just didn't cut it,” Guilford said.

The decision casts doubt on whether lawyers can rely on waivers to legitimize concurrent
representation of clients with adverse interests in overlapping criminal and civil
proceedings. The court's restrictive stance on the question of waivability will be
especially alarming to large firms that see conflict waivers as a key risk management
tool.

Civil RICO Suit, Criminal Charges

Hueston Hennigan lawyers represented SCIF in a civil racketeering suit against Michael
Drobot Sr. and other defendants who allegedly mounted a long-running scheme involving
kickbacks and fraudulent billing for spinal surgeries at a now-defunct hospital in
Southern California.

During the same time frame another lawyer in the firm, Brian Henningan, was representing
Paul Randall, a health care marketer, in a criminal probe that grew out of the scheme.
Randall
pleaded guilty and he's now left with uncertainty about his legal representation while awaiting
a “life-altering sentencing hearing,”
Guilford said.

One of the defendants in SCIF's civil suit
filed a motion to disqualify Hueston Hennigan as its counsel. Some other defendants joined in the
motion, although many defendants represented by large firms didn't, Guilford said.

Guilford
ejected Hueston Hennigan in March and produced this opinion to explain why he found disqualification
necessary and why he wouldn't reconsider his decision.

Nonclients Had Standing

On a threshold issue Guilford held that the defendants seeking Hueston Hennigan's
disqualification had standing to raise the firm's conflict of interest even though
they weren't its current or former clients.

Guilford relied on
Colyer v. Smith,
50 F. Supp. 2d 966
,
15 Law. Man. Prof. Conduct 275
(C.D. Cal. 1999), which said that nonclients have standing when a lawyer's ethical
breach “infects the litigation” so severely that it may obstruct justice for the nonclient.

Hueston Hennigan's conflict of interest had already affected the defendants' discovery
on Randall's connection to the kickback scheme, and the firm's divided loyalties might
even furnish grounds for overturning the eventual result of the litigation if it remained
as counsel for both SCIF and Randall, Guilford said.

Actual, Adverse Conflict

Guilford found that Hueston Hennigan's concurrent representation of SCIF and Randall
posed an actual, adverse conflict of interest.

The clients' divergent interests presented a crisis of loyalty for the firm, Guilford
said. He rejected the idea that their interests were aligned because Randall's plea
agreement required cooperation.

Hueston Hennigan was involved in a “zero sum game” in which its attorneys had knowledge
that could help one client at the expense of the other, Guilford said. He described
several ways in which the conflict could—and in several instances did—lead Hueston
Hennigan to pull punches in representing SCIF or Randall.

For example, he pointed out that SCIF didn't name Randall as a defendant in its case,
and it didn't add him as a defendant later on when it expanded its complaint and filed
an additional suit. Drobot brought in many additional parties as third-party defendants,
and SCIF sued nearly all of them except Randall, Guilford said.

He also noted that Randall's criminal defense counsel didn't come to his deposition
in the civil case, where a Hueston Hennigan attorney asked Randall about his connection
to the kickback scheme, leading Randall to “inconsistently invoke his Fifth Amendment
privilege.”

In addition, Guilford said the conflicting interests could limit the firm's advocacy
for Randall in his criminal case at sentencing with regard to the extent of his cooperation
and the amount of any fine and restitution.

“Trying to represent a criminal defendant while representing his victim seems to present
obstacles so obvious and numerous as to defy complete delineation,” Guilford said.

No Waiver Possible

“[T]he duty of loyalty is improperly and impermissibly compromised when one law firm
represents—at the same time, in the same litigation, in the same courthouse—a criminal
and his victim,” he said.

SCIF argued that concurrent conflicts are unwaivable only in situations where a lawyer
represents adversaries at a contested trial or hearing. It grounded this argument
on language in
Klemm v. Superior Court, 142 Cal. Rptr. 509 (Cal. Ct. App. 1977), which said concurrent representation of
clients with adverse interests at “a trial or hearing” is barred even with a conflict
waiver.

Guilford didn't agree that unwaivability is confined to that context.
Klemm didn't say that contested trials or hearings are the only settings in which concurrent
conflicts bar representation despite a waiver, and
Klemm didn't address concurrent conflicts in complex, multidefendant litigation, he said.

Waivability Argument Falls
Flatt

Guilford found it unnecessary to decide here whether a firm's representation of adversaries
must be in the same “lawsuit,”
the same “litigation” or the same “matter”
in order for the conflict to be deemed unwaivable.

SCIF's civil actions and the criminal case involving Randall are effectively the same
for conflicts purposes, Guilford said.

Treating the civil and criminal cases as distinct would elevate form over substance
and would invite lawyers to dodge conflicts by finagling joinder rules or committing
other shenanigans, he said.

Guilford also grounded his holding of unwaivability on the court's inherent authority
to manage lawyer conduct in cases before it. Hueston Hennigan's concurrent representation
of SCIF and Randall threatened the interests of the court, the parties and the public
in ways that even informed written consent couldn't fix, he said.

The firm
pointed out that SCIF had executed four separate conflict waivers specific to the firm's concurrent
representation of Randall in the criminal matter. SCIF provided informed written consent
each time there was a change in Randall’s actual or anticipated role in the proceeding,
the firm said.

Guilford acknowledged that Rule 3-310(C) allows concurrent representation of clients
with adverse interests in limited situations if both clients provided informed written
consent. However, the comment to that rule recognizes that written consent may not
suffice for some conflicts, he pointed out.

Moreover, Guilford found that even if the consent exception in the rule were broad
enough to apply here, Hueston Hennigan didn't actually secure informed consent from
SCIF and Randall.

He combed through Randall's three waivers and SCIF's four waivers, and found them
ineffective.

The waivers at times incorrectly described the criminal and civil proceedings as “unrelated,”
and large portions of the waivers amounted to boilerplate without much substantive
meat, Guilford said. The waivers also contradicted one another and contained questionable
terms, he said.

Guilford contrasted these waivers with a conflict waiver that he found sufficient
in another case. See
United States v. DeCinces, No. SACR 12-0269-AB,
Dkt. 441 (C.D. Cal. July 21, 2015). That waiver was the “gold standard” for effective informed
consent, he said.

Guilford also found that the timing of the waivers impaired their efficacy. Getting
new waivers late in the game can mean that a client consents just to avoid the difficulty
and expense of switching attorneys, he said.

Experts, Hot Potatoes and ‘Conflict Counsel.'

Hueston Hennigan provided opinions from several experts who said disqualification
wasn't appropriate, but Guilford gave short shrift to the experts'
views. Their declarations ignored important questions about the law and how it applies
to these particular facts, he said.

Guilford also said Hueston Hennigan couldn't have fixed the situation by simply dropping
either SCIF or Randall as a client. The “hot potato” rule prevents lawyers who knowingly
undertake adverse concurrent representation from dropping the less favored client
like a “hot potato” when a conflict appears, Guilford said.

Moreover, Guilford didn't like SCIF's idea of remaining as counsel but using “conflict
counsel” to provide independent representation on particular points. That approach
presented many practical problems that would further complicate an already complicated
case, he said.

Jason A. Armstrong, Bozeman, Mont., and M. Cris Armenta, Manhattan Beach, Cal., represented
Lokesh S. Tantuwaya, who filed the motion to disqualify. Joseph T. McNally and Scott
D. Tenley, Office of the U.S. Attorney, Santa Ana., Cal., represented the United States,
which joined in the motion.

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